Nordic Countries Increasingly Attractive as Sites for Data Centers

LULEA, SWEDEN — At the edge of this small northern city, in a thicket of trees and hardened snow, a future hub of Facebook’s global data traffic is taking shape.

Scaffolding still clings to its exterior, but soon, the structure will be packed with servers storing and transmitting the photos, status updates and friend requests of legions of users around the world.

Yet inside a portable office on the construction site, it is clear that Matz Engman, chief executive of the Lulea Business Agency, is already thinking of life beyond Facebook, the world’s biggest social network, with 850 million users.

“This is just the beginning,” Mr. Engman said. “What we want is to be the hub for all data traffic in Europe.”

And while most centers continue to be in the United States, Nordic countries are attempting to lure them to cities like Lulea, where renewable energy is abundant and electricity prices are relatively low.

The growing appeal of the Nordic countries was highlighted in a study released Thursday by the consulting firms Cushman & Wakefield and Hurleypalmerflatt. While Britain and Germany were ranked as the top European locations for data centers, they were closely followed by Iceland, Sweden, Finland and Norway, based on an evaluation of risk factors including energy costs, connectivity and political and environmental stability.

“What we are seeing, certainly in the data storage market, is the rise of the Nordics, which may in the future dilute the market share from the traditional centers in Europe,” Keith Inglis, a partner in the Europe, Middle East and Africa data center advisory group at Cushman & Wakefield, said in a statement.

In Lulea, the hope is that data centers will draw more technology investment, innovation and a new wave of “digital industry” to a region still primarily known for its steel and mining industries.

Some question whether data centers could ever serve as economic catalysts and say that offering financial incentives for facilities that essentially operate as information warehouses is unwarranted.

Data centers typically employ a small staff of administrators to maintain servers, “so it’s not like there is a lot of innovation once they’re built,” said David Cappuccio, chief of infrastructure research at Gartner.

On the other hand, he said, “You get a million-square-foot data center built, so you get a lot of construction for 18 months or so. For a while, there’s a lot of revenue going into the town. But once it’s built, these things run virtually lights out.”

Sweden and the other Nordic countries are attempting to chart a different course. In addition to Facebook, which will spend as much as $750 million on the center, Google has built a €200 million, or $265 million, data facility in Hamina, Finland; Verne Global is investing $700 million in its center in Iceland; and Green Mountain Data is building a facility worth 1 billion Norwegian kroner, or $175 million, in Norway.

Worldwide spending on data center equipment is expected to top $126 billion in 2015, up from $98 billion last year, according to Gartner. Most of that investment will come from companies driving the growth of the cloud.

There are already 250 such facilities in Europe and the industry will most likely add another 50 structures in the next few years, even as the region’s economy sputters, according to the research firm Gartner. Locating data centers in different parts of the world provides faster connections for users in the area and provides a backup in the event of a system failure at another facility.

Compared with Ireland, which began pursuing data centers in the mid-1990s, the Nordic countries are relative newcomers. But they have joined the contest at a time when Apple, Microsoft, Facebook and Google, among other companies, are competing with one another to create more energy efficient operations.

Data centers require enormous amounts of energy to operate and cool servers, leaving them vulnerable to high electricity costs and criticism from environmental groups.

While the cold temperatures in the Nordic countries provide natural cooling, Sweden, Norway and Iceland are also leaders in the production of inexpensive renewable energy.

“Green has become a really important piece,” said Rachel Dines, a senior analyst at Forrester, the research firm. “Not only does it look good and look environmentally conscious and sustainable but it also saves you a lot of money because green means less power, and power is the No. 1 cost of running a data center.”

Chilly temperatures and access to renewable energy made the Nordic area particularly attractive to Facebook, which is building its third data center but its first outside the United States.

“It’s pretty cold in Sweden, and there aren’t many summer months,” said Jan Fredriksson, a spokesman for Facebook in Sweden. “The same of course goes for Norway and Finland.”

In Lulea, a city of 75,000 just 100 kilometers, or 61 miles, south of the Arctic Circle, temperatures hover below zero for five months of the year and have not risen above 30 degrees Celsius for more than 24 hours since 1961. Cutting through 460 kilometers of forest, the big Lule River generates twice as much hydro power as the Hoover Dam, in the United States, producing a 50 percent surplus of energy. Traditional industries like steel making and mining remain important, though the city is also home to the Lulea University of Technology and a small business park for technology firms.

The area could accommodate another 10 data centers the size of Facebook’s, which will ultimately pull as much as 120 megawatts of electricity into three structures of 28,000 square meters, or 301,389 square feet, each, Mr. Engman said. The Facebook center will employ 300 people over the three-year construction phase and 40 to 50 people on a permanent basis, once the first building is complete.

The ambition in Lulea is to create a hub where data center operators collaborate with students and professors at the university, creating an environment for research and development in areas like energy efficient computing and smart grids.

“We are hoping they won’t operate in isolation the way they sometimes do in the United States,” said Tomas Sokolnicki, an adviser at Invest Sweden. “We’re hoping they’ll want to do something different in Sweden, to take part in research. Initially it may be tough but in the long term, we think it will work.”

Data centers have rarely played this role in the past, though this could change as they grow larger and more complex, said Nils Molin, Stockholm-based director at IDC, a research firm.

Even if the main offices of cloud companies are in U.S. cities like San Francisco and Palo Alto, California, “the asset is still in Sweden and near a research center like the university in Lulea,” said Mr. Molin. “It’s not too unlikely that the guys in Palo Alto might think it’s a good idea to invest in Swedish research that will help them ultimately.”

Possibly, said Ms. Dines, though the driving motivation for cloud companies when choosing a location is almost always the cost of land and power and the financial incentives available.

“I’m not sure I’ve seen a lot of evidence that it will bring the benefits countries think it will,” she said. “At least I haven’t seen much evidence of it yet.”

Mr. Fredriksson, the Facebook spokesman, said the company was interested in collaborating with the university but no projects have been defined yet.

Though tax breaks were not part of the deal, Sweden provided an investment grant of 103 million kronor to Facebook. That money could have been spent on broadband and other infrastructure that would benefit all companies, said Per Boland, a spokesman for the Green Party in Sweden. “This sets a standard for the future and it could be a very expensive way to attract business to Sweden,” he said.